Oregon Construction Contractors (CCB) Practice Test

What does Privity of Contract refer to?

1. The direct relationship between parties to the same contract

2. A guarantee of confidentiality

3. A covenant restricting subcontracting

4. An agreement for exclusive rights

The correct answer is: The direct relationship between parties to the same contract

Privity of Contract refers to the legal relationship that exists between the parties who enter into a contract with one another. This relationship means that the parties involved have the right to enforce the terms of the contract, and that they are bound by its obligations and benefits. Essentially, only those who are parties to the contract have the authority to sue each other for breaches or to seek legal remedies based upon the contract's provisions. Understanding privity of contract is essential in construction, as it reinforces the importance of clear agreements between contractors, subcontractors, and clients. If a dispute arises, only the parties directly involved in the contract can seek to resolve the issues based on that contract. This principle helps to delineate responsibilities and enforce obligations, ensuring that all parties are aware of their rights and duties under the law. The other choices focus on different concepts that do not capture the essence of privity of contract. For instance, confidentiality and exclusive rights refer to different legal agreements or protections, whereas a covenant restricting subcontracting addresses specific terms within a contract rather than the general relationship defined by privity.